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Feb 13 Trade Tensions with China

The recent move by the Trump administration to place tariffs on solar panels and washing machine imports may create tension with South Korea and China. Both countries export a surprising number to the United States. China’s Global Times has already warned that “nothing good” would come of President Trump engaging China in a trade war. While this may be nothing more then posturing, a recent article by BBC suggests there may be a few ways for China to retaliate economically. While this is all highly speculative, it begs the question what international consequences are being created with the “America First” rhetoric.

The first,and perhaps greatest,fear that many see in a trade dispute with China, is that it owns about 1,000,000,000,000 of U.S bonds ,which some believe could lead to economic crisis if the bonds were liquidated suddenly. The assumption that this is automatic leverage over the United State and its policy is not entirely correct. If China were to attempt to sell the bonds,most likely other countries would purchase them as they are widely considered a premiere long term investment by other state actors.. In 2015 China sold off 180,000,000,000 of its U.S. debt, but due to the international value of U.S. treasury-backed bonds,it had almost zero impact on the value of the dollar. While having this much debt in the hands of one foreign government may be scary to some, most experts agree that it is a disincentive for trade, or actual violence. As of 2016,China was the single largest sovereign nation holding U.S. debt, but Japan came close as a second and domestic holding of U.S. debt was vast in comparison to either.

Other methods of retaliation may be more likely but are almost equally complicated. China has suggested it might lodge a formal complaint with the World Trade Organization. A move that would be highly hypocritical since they have had many complaints filed against them for trade practice grievances.

Beef exporters are worried that China will reject a previous decision to allow U.S. beef to be imported into the country. China could choose to raise issue over health and inspection issues and cause domestic beef to suffer setbacks. While China is currently a small customer, the reopened possibility being closed again would be a hit for U.S. ranchers. Chinese customers may also “choose” not to spend money on American vacations or products which would also be a hit. The growing Chinese middle class have been increasing vacations to the United States. China will make up half of the car market by 2022. The growing Chinese contribution to global spending is a good reason American retailers and manufacturers might be worried about a cooling in Sino-American relations.

Until the actual impact of the tariff is seen China’s behavior will be hard to predict. It is unlikely that China will do anything to seriously affect trade with the United States However it is prudent to consider the long-term ramifications,especially as economic warfare can quickly devolve into armed conflict.